Cross Option Agreements are sometimes also referred to as Double Option Agreements or Company Wills. Their purpose is to grant options to each party on the death of a shareholder ie the deceased's 'estate' and the continuing shareholder(s).
Just leaving a legacy of the shares to the co-shareholders in a Will could result in the family missing out, whereas leaving the shares to the deceased's family in the Will could result in both the family and the co-shareholders missing out!
What should be considered are the financial consequences of the death of a Director on their family, beneficiaries and also the business. Putting in place a binding agreement that the remaining shareholders have to buy the shares on the death of a shareholder would mean that:
- the deceased's family/beneficiaries could benefit from the deceased's shareholding/value in the business
- the surviving Directors have the option to acquire the deceased's shareholding
Either way monies would inevitably be required and it's highly unlikely that funds would already exist unless Life Insurance Policies are established.
Like all estate planning, these decisions need careful consideration to ensure the outcome is beneficial to all parties, and need to be done in a calm, rational environment when everyone has the time to think clearly rather than be forced into a corner unexpectedly.
If you are a business owner with partners and shareholders you need to give consideration as to how you will protect the family of the deceased and the surviving Shareholders and Directors, which will normally also include taking out life assurance policies and assigning these to Trust.
For more information please get in touch and we can guide you through the most appropriate process for you, your business and your family.